Simple and Fairer Alternatives to Council Tax
Council tax is a charge on homes, usually set by how much your property is worth. It pays for services like rubbish collection, police, fire and schools.
But many people say it’s unfair, because often charges are based on the wrong value band (set years ago), which means neighbours in similar homes pay wildly different amounts.
It’s sometimes the case that a millionaire in a swanky mansion pays little more in council tax than someone in a small terraced house.
Council tax benefit is often available for people on single-person households (25% discount), low-income households (including pensioners), people with disabilities and students.
Also check if you qualify for a council tax refund, due to Valuation Band Errors (in some cases, this can lead to refunds of thousands of pounds).
Why Valuation Bands Got Out of Date
Council tax was brought in after the Poll Tax (which caused riots – ask your mum or dad). Council tax set the entire system to property prices from 1991, but many homes have shot up in value since then, but are still banded with cheaper properties.
This can lead to massive unfairness. For instance a London property banded at Band C in 1991 that’s now worth £900,000 would pay around £1,700 council tax a year. Yet a Leeds property banded at Band D in the same year and is now worth £280,000 would pay more (around £2,000 a year).
Then we have different councils, who each may give levels of benefit. And if your income goes down, so may your benefit. And to make things worse, many people have no idea that they are entitled to benefits or possible refunds, due to being wrongly banded years ago.
Simpler and Fairer Council Tax Alternatives
While it’s good to claim benefits and refunds if you are entitled, a much better idea would of course be to get rid of council tax altogether, and replace it with something simpler and fairer.
There are a few ideas touted around, the most popular being:
Annual Proportional Property Tax charges a set percentage of property (current) market value. This is fair, so higher-value homes pay more, and less expensive homes pay less. This idea was created by economist Tim Leunig (who created the furlough scheme during the pandemic). It would also merge with stamp duty, to make one payment.
At present, a Band D home in Blackpool can pay twice as much as a home in the same band in Westminster. And stamp duty is not just complicated, but makes buying homes more expensive.
Council tax and stamp duty are terrible taxes. They are unfair and unpopular. Council tax should be replaced by an annual tax on all houses, and stamp duty with an annual tax only on houses worth £500,000 or more. Tim Leunig
A land value tax taxes the land that property sits on, rather than taxing buildings and land together. This means that you are not charged by how run-down or fancy your house is (so you are not penalised for say giving a derelict house a makeover).
One big advantage of this tax is that it discourages people from buying second homes that sit empty most of the year (this happens in many holiday destinations, which then pushes up property prices, so local people can’t afford to buy their own homes).
With a Land Value Tax, people who buy second homes have to pay to maintain them, empty or not. So you have say less millionaires from London buying ‘surfing homes’ in Cornwall, that are only used for a few weeks a year. With this tax, they would have to keep paying tax on them even when not used, so they would be encouraged either to sell up, or at least rent them out to local people.
And unlike buildings, you can’t hide or undervalue land. So speculators won’t be tempted to sit on empty plots, and wait for prices to rise.
The big advantage is that you can’t hide or undervalue land in the way you can with buildings. This type of tax makes it harder for speculators to sit on empty plots and wait for prices to rise. This also creates nicer communities (as land would not be left empty nor used as car parking spaces, as this would be too expensive). In other words, it’s almost impossible to ‘game the system’.
A local income tax links bills directly to how much people earn (not where they live or what property they own). Councils set the rate (usually between 1% to 5%) and this is simply added to national income tax, to fund local services.
This is good if you lose your job, as you then pay less. And if you earn more, you pay more. And it’s far simpler to collect, as your income (collected through PAYE or self-assessment) is already known.
Some high earners don’t like this choice, as they end up paying more for the same local services. And councils in poorer regions (with higher unemployment) may struggled to raise enough money, unless national government steps in to help.
Community Contribution Tax is where each adult pays a flat amount each year. This is not the same as the old Poll Tax (where a millionaire paid the same as a binman, and led to Margaret Thatcher’s resignation).
This idea reduces fees for people on the lowest income, and lets people volunteer time for credit, in place of cash. Real world examples include:
- Local membership fees for parks, libraries, or resident groups.
- Schemes where those struggling can do one or two days’ volunteering each year (litter picking, helping at community events, or keeping green spaces tidy) instead of paying the full fee.
- Businesses or landlords chipping in a higher amount than individual residents.
This would work, as long as you live in the kind of area where wealthy people are into local investing, and there is a strong community spirit. It can’t raise huge sums like council tax, but does give communities more of a day in how their area is funded and run.
Social Impact Bonds is not really a tax, but offers councils another tool to raise money. Investors put up the money for a local project (say helping rough sleepers or improving parks. If the project meets its goals (measured by agreed results), the council repays the investors, often with a small return.
A good example would be parents funding an after-school programme to tackle youth crime. If crime drops as planned, the council then pays them back, from savings made in police and emergency costs. If not, the investors stand the loss, not the local taxpayers.
This not only can ease short-term strain, but encourages councils to do their job property (if not, the investors will likely not vote for them again).
What Council Tax Alternative Do You Prefer?
Now you have read about all the council tax alternatives, which one do you think would work best? A fairer system based on income and land (and built on trust) is not only simpler to collect, but also builds trust in communities, at a time when councils need lots of money to sort out local problems.
